Urgency Of Turning Around The Refineries

On assumption of duty and in the wake of the harsh fallout of the peremptory removal of the corruption- infested subsidy on premium motor spirit (PMS), President Bola Ahmed Tinubu, as the Minister of Petroleum Resources, had assured Nigerians that the local refineries would start operating optimally by year end.

The assumption was that by that date, all the turnaround maintenance would have been completed. Soon after, there were media reports that suggest a glitch in the process as there were mismatch in some of the parts to be used in the repairs.

What that could possibly mean is that the deadline for the turnaround maintenance of the Port Harcourt refinery, in particular, may not meet the target date. This is generating apprehension in the public space regarding the possibility of attaining the goal of putting the refineries back to service.

However, the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, had said that he would hold Nigerian National Petroleum Company Limited (NNPCL) accountable as far as dates scheduled for completion of rehabilitation of the country’s refineries are concerned.

The Nigerian National Petroleum Company Limited (NNPCL) is the agency of government tasked with rehabilitating the three refineries in the country.

Senate Investigates N11.35trn Spent On Moribund Refineries

Industry watchers claim that over $25 billion have been expended on fixing the refineries in the past 10 years.  A report by the 9th   National Assembly also claims that despite this huge expenditure, the refineries are producing at less than 30 per cent installed capacity

The Senate, on its part, had constituted an ad hoc committee to investigate NNPCL over N11.35 trillion spent on Turn Around Maintenance (TAM) of refineries. The committee is directed to interrogate the Federal Ministry of Petroleum Resources, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), NNPCL, and the Bureau of Public Enterprises on the best approach to commercialising and ensuring profitability of the state-owned refineries.

The challenges militating against the regulated downstream market in Nigeria include, but not limited to, cronyism and corruption, weak political will, unstructured refinery licensing scheme, and security issues.

According to industry reports, Phase One of the Warri refinery will be ready by the end of the year, while Phase Two and Three in Port Harcourt refinery will be ready next year and the whole of Kaduna refinery will be ready by the end of next year.

The concern that is so palpable is based on the fact that making the refineries operate optimally was part of the rapprochement the federal government reached with the Nigerian Labour Congress (NLC).

Nigerians, including labour, had flayed the president’s decision to remove the subsidy because no measure was put in place to ameliorate its very harsh after effects.

The current pump price of fuel in Nigeria was arrived at after adding up the actual cost of Premium Motor Spirit (PMS), freight, insurance, local distribution, margins by marketers, charges by the Nigerian Port Authority (NPA), Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) and Nigerian Maritime Administration and Safety Agency (NIMASA).

While the actual cost of the product, as of July 14, 2023, stood at N529 per litre, freight, insurance, NPA, NMDPRA and NIMASA charges would have been avoided if the product were refined locally.

Nigeria’s daily consumption has dropped to about 45 million litres; the freight of N21 per litre on that is about N945,000,000, bringing the monthly estimate to about N29.2 billion.

  Similarly, the over $15.1 billion being used to import PMS alone into the country may still be going into the economy of other nations, a development which mocks the government’s subsidy removal. If these refineries had been successfully revitalised, Nigeria could have achieved self-sufficiency in crude oil refining, thereby stabilising petrol prices.

In addition, the inability of the Nigerian state to build additional refining capacity to cushion its domestic supply gap for refined petroleum products (RPPs) has become a major concern.

With more than 40 licences issued to private companies since 2002, only two companies (Niger Delta Petroleum Resources Refinery and Dangote Oil Refinery) have made noticeable progress in new refinery construction.

The challenge has been continued importation of refined products, which costs are reflective of the prevailing market rate of the foreign exchange.

In our view, there is need for all and sundry to exercise some patience amidst the ongoing struggle to put the  local refineries in good shape, even as we call on the federal government to evaluate the possibility of extending support to modular refineries.

As the nation awaits the coming on stream of Dangote and the Port Harcourt refineries next month, December, the calculation is that the two facilities will enable the country to save foreign exchange on petrol imports and transit to petrol exports, while also allowing for stability in fuel prices to some extent.

In our considered opinion, local refining of crude oil, is a matter of national emergency. The country cannot continue to waste scarce foreign exchange on importation of petrol when it has three refineries crippled by corruption and inefficiency.